It's Not Your Mother's Electric Company

March 30, 1997|By The Wall Street Journal.

Love the power company, hate the phone company? Maybe you can get your phone service from your electric utility.

Freed last year by a significant change in federal law, electric and gas utilities are plunging into the telecommunications business. American Electric Power Co., based in Columbus, Ohio, will soon carry telephone conversations over the wires that control its power lines. Boston Edison Co. plans to offer cable-TV and home-security services. And KN Energy Inc. in Lakewood, Colo., has started selling satellite dishes and Internet services to customers who used to rely on it only for natural gas.

"We're shifting away from the old energy-production model," says Thomas J. May, chief executive of Boston Edison. Already, about 85 utilities, including 41 of the 200 big, investor-owned companies, have established or plan such operations, says Chartwell Inc., a trade publisher in Atlanta.

The cable-TV industry's mostly unsuccessful foray into telephone services shows how perilous such a course can be. The electric and gas companies, most of which have operated as geographic monopolies, have little experience waging the kind of bruising marketing wars that characterize the telecom business. And state regulators remain wary, with some believing that utilities' profits should be used to buy back stock or lower electric rates, not for risky investments.

The utilities also don't necessarily know what consumers want or how to keep them happy. Working with a local developer in Greensboro, N.C., Duke Power Co. spent several hundred thousand dollars building an infrastructure that would handle delivery of state-of-the-art video and data services to 2,000 new homes. The high-tech capabilities were supposed to lure buyers, but fewer than 10 homes have been built, wired and sold in two years.

Despite such missteps, some handicappers argue that the utilities have formidable natural advantages. Electric and gas companies own a total of about 600,000 miles of high-capacity, fiber-optic cable. Now used mostly for internal communications, the lines can be adapted to carry video, audio and textual signals in digitized, computer form to customers.

The utilities also have long-established rights-of-way to lay more wire, as well as billing systems and long-term consumer relationships that equal those of traditional telephone companies and are usually superior to those of Internet and telephone newcomers.

Hod Kosman of rural Scottsbluff, Neb., says he bought satellite-TV and Internet services from KN Energy because "these were people I knew and had faith in." Kosman pays $65 a month for the services, which is competitive by rural standards.

Before he bought the new services, Kosman had only two TV channels and spotty Internet access through a local community college. Now he has 50 channels and a dependable cellular modem linking him to the Web.

KN doesn't actually own a satellite or write Internet-access software itself; it acts as a reseller, keeping some of the revenue for itself and passing the rest to primary vendors, including EchoStar Corp., a satellite company in Englewood, Colo.

In Fergus Falls, Minn., Otter Tail Power Co. began a diversification effort several years ago that led it to acquire several small telephone and cable-television companies. Rod Scheel, who leads the company's efforts in these areas, says profits from its Midwest Information Systems unit are still small relative to power sales, but are rising.

Many utilities began planning their new operations as state regulators sped up deregulation plans that let electricity and gas buyers choose their provider. In Massachusetts, where regulators are encouraging utilities to choose between the power-generation and transmission functions, Boston Edison is opting for transmission. It plans to sell off its coal-fired generating plants.

The company would still get a fee for delivering electricity through its wires, but it hopes to deliver much more. Late last year, it announced a partnership with a unit of C-Tec Corp., Princeton, N.J., that provides for each company to invest about $150 million in the next several years to develop telephone, video and data services in the Boston area. Initially, the services would be sold to apartment buildings and offices located along a 200-mile ring of Boston Edison fiber-optic cable.

Such high-bandwidth networks were installed in the 1970s to monitor and operate electric substations from central control rooms. While the utilities' 600,000 miles of fiber wire is less than 5 percent of the total fiber owned by regional Bell and long-distance telephone companies, much of the utilities' excess capacity--"dark fiber," in industry parlance--runs past valuable downtown real estate, where installing new lines is difficult and expensive. And the costs of the networks have already been passed on to ratepayers.

The utilities successfully lobbied for provisions in the 1996 Telecommunications Act that ended New Deal-era rules banning them from the telephone business. While some telephone companies are still fighting rear-guard actions, others have become the power companies' allies. BellSouth Corp. has joined Duke Power and Carolina Power & Light Co. in a $500 million venture that, since last July, has sold wireless personal communications services, or PCS. The project uses the utilities' fiber-optic lines to link transmission facilities built by BellSouth.